Enticing Terms for Oil Buyers on IRENEX

EghtesadOnline: Having hosted eight crude oil auctions since last year, Iran Energy Exchange is adapting to the possible needs of potential customers with the belated advent of the black stuff to its trading portfolio.

News ID: ۷۸۴۶۰۳

16 April 2019

Except for one initial enthusiasm for the new commodity in its early offerings, most of the subsequent oil offers have fallen flat with rarely any customer coming forward.

Despite the fact that the first spoiler, and rightly so, is the hostile US restrictions on Iran oil exports, Ali Hosseini, the managing director of IRENEX and other capital market officials point to novelty of the offer and the time it could normally take for buyers to align with oil trading in the stock market.

In a joint interview with the Financial Tribune and its sister publication, the Persian-language Donya-e-Eqtesad newspaper, Hosseini said better conditions by the National Iranian Oil Company (seller) would be "tempting'' for potential crude oil buyers.

"General selling conditions for crude oil and features mentioned in the [upcoming] offer have been designed in a way to tempt potential buyers and motivate them," Hosseini said.

One feature is the possibility for buyers to settle payments entirely in rial or in foreign currency. Another is the ability for settlements to take place outside a securities depository.

This doing away with formality in settlements means less hassle for both buyer and seller, and if the two sides agree, totally do away with prepayments. The parties can take a step further and forego the need for bank guarantees.

The latest round of crude oil offer earlier this month on IRENEX ended without any trade. It was the eighth of its kind and the first in the new fiscal that started on March 21.

As in the previous rounds, one million barrels of light crude oil was offered by NIOC at a base price of $63.36 per barrel.

As for pricing procedures, the NIOC notice says the base price of each barrel of oil will be declared by NIOC in USD subject to the average Brent quotations during 10 international business days before the date of offer announcement.

Oil was offered in cargos of 35,000 barrels each and buyers were required to purchase minimum one cargo. Buyers could receive the cargo either at Kharg Island terminal in the Persian Gulf or Tabriz Refinery, if they requested a land delivery, a facility lacking in the first six offers.

Both domestic and foreign companies were allowed to place orders after depositing 6% of the order value two hours before the trading began.

Offering crude oil on the stock market is part of efforts to involve the private sector and international companies in Iran’s oil industry, which has long been under tight government control.

As part of the current fiscal budget, lawmakers passed a proposal to oblige the Oil Ministry to offer on a monthly basis 2 million barrels of light crude on IRENEX.

Current Year Plans

Asked about the volume of oil offers on IRENEX during the current year, Hosseini referred to the laws including the ceiling set in the 2019-20 budget law.

According to the official, in the past year 40 trillion rials of financing (mostly in the form of Salaf bonds) took place through the IRENEX, hoping the number would climb this year.

"We have sent our plan for natural gas trading on IRENEX to the relevant officials and are waiting for the administrative processes to be completed," he said.

"It is possible to create a natural gas ring on IRENEX just like for electricity in the past, and as there is the possibility of storing gas it would be easier," he said.